ABM Steels Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-1(1), Ahmedabad

ITA 176/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6872 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-03-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 19-01-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Opportunity of being heard; Retrospective amendment
• Section: 143(3); 80HHC; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, A BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND BHAVNESH SAINI, JUDICIAL MEMBER) ITA NO.176 AND 177/AHD/2009 [ASSTT. YEAR : 2002-2003 AND 2004-2005] ABM STEELS PVT. LTD. 64/A, GIDC, PHASE-I VATVA INDUSTRIAL ESTATE AHMEDABAD 382 445. PAN : AABCA 6004 C VS. ITO, WARD-1(3) AHMEDABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.N. SOPARKAR REVENUE BY : SHRI R.K. DHANESTA O R D E R PER G.D. AGARWAL, VICE-PRESIDENT : THESE ARE TWO APPEALS BY THE ASSESSEE AGAINST THE ORDERS OF THE COMMISSIO NER OF INCOME TAX(APPEALS)-VI, AHMEDABAD ARISING OUT OF THE ORDER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) R.W.S. 147 OF T HE INCOME TAX ACT, 1961. SINCE ASSESSEE BEING SAME, FOR THE SAKE OF C ONVENIENCE, WE DISPOSE OF BOTH THE APPEALS BY THIS COMMON ORDER. ITA NO.176/AHD/2009 FOR A.Y.2002-2003: 2. GROUND NO.1 & 8 OF THE ASSESSEES APPEAL IS WITH REGARD TO THE CLAIM OF DEDUCTION UNDER SECTION 80IA/80HHC ON FORE IGN EXCHANGE RATE DIFFERENCE OF RS.12,48,932/-. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WE FIND THIS ISSUE TO BE COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. AMBA IMPEX, 282 ITR 1 44. THE ITAT IN ASSESSEES OWN CASE FOR A.Y.2344/AHD/2004 SET AS IDE THE MATTER BACK ITA NO.176 AND 177/AHD/2009 -2- TO THE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDIC ATING THE ISSUE IN ACCORDANCE WITH LAW AND THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. AMBA IMPEX, 282 ITR 14 4. THE FACTS OF THE CASE UNDER CONSIDERATION ARE ADMITTEDLY IDENTICAL. WE THEREFORE FOLLOWING THE DECISION OF THE ITAT IN ASSESSEES OW N CASE FOR A.Y.2001- 02 (SUPRA) SET ASIDE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER AND WE DIRECT HIM TO RE-ADJUDICATE THE MATTER IN VI EW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F AMBA IMPEX (SUPRA) AND PROVISIONS OF LAW. NEEDLESS TO MENTION THE ASS ESSING OFFICER WILL ALLOW ADEQUATE OPPORTUNITY OF BEING HEARD TO THE AS SESSEE WHILE ADJUDICATING THE ISSUE. 4. GROUND NOS.2 AND 3 OF THE ASSESSEES APPEAL READ AS UNDER: 2. THE LD.CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND O N FACTS IN CONFIRMING THE EXCLUSION OF SALE VALUE OF DEPB LICE NCE AMOUNTING TO RS.72,43,497/- FROM THE PROFITS OF THE INDUSTRIA L UNDERTAKING FOR THE PURPOSES OF SECTION 80IA IN TOTAL DISREGARD OF HE AMENDED PROVISIONS OF SECTION 28(IIID) AND 28(IIIE) W.R.E. FROM 1-4-1998. 3. THE LD.CIT(A) HAS GROSSLY ERRED IN LAW AND ON FA CTS IN CONFIRMING THE EXCLUSION OF THE DEPB LICENSE ON HAN D AMOUNTING TO RS.4,21,72/- FROM THE PROFITS OF THE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF SECTION 80IA IN TOTAL DISREGARD OF THE A MENDED PROVISIONS OF SECTION 28(IIID) AND 28(IIIE) W.R.E.F FROM 1-4-1998. 5. AT THE TIME OF HEARING BEFORE US, THE LEARNED CO UNSEL FOR THE ASSESSEE FAIRLY ADMITTED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF LIBERTY INDIA VS. CIT, 317 ITR 218 WHEREIN THE HONBLE APEX COURT HEL D AS UNDER: DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY THE CENTRAL GOVERNMENT OR FROM SE CTION 75 OF THE CUSTOMS ACT,1962. INCENTIVE PROFITS ARE NOT PRO FITS DERIVED ITA NO.176 AND 177/AHD/2009 -3- FROM ELIGIBLE BUSINESS UNDER SECTION 80-IB : THEY B ELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKING. PROFITS DERIVED BY WAY OF INCENTIVES SUCH AS DEPB/DUTY DRAWBACK CAN NOT BE CREDITED AGAINST THE COST OF MANUFACTURE OF GOODS D EBITED IN THE PROFIT AND LOSS ACCOUNT AND THEY DO NOT FALL WITHIN THE EXPRESSION 'PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING' UNDER SECTION 80-IB . RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HO NBLE APEX COURT WE UPHOLD THE ORDER OF THE AUTHORITIES BELOW ON THIS P OINT AND REJECT THE GROUND NO.2 AND 3 OF THE ASSESSEES APPEAL. 6. GROUND NO.4 AND 5 OF THE ASSESSEES APPEAL READS AS UNDER: 4. CONFIRMING EXCLUSION OF NET SERVICE CHARGES RECE IVED OF RS.13,23,938/- FROM THE PROFITS OF INDUSTRIAL UNDER TAKING FOR COMPUTING DEDUCTION UNDER SECTION 80IA. 5. CONFIRMING EXCLUSION OF INTEREST INCOME OF RS.5, 35,604/- FROM THE PROFITS OF INDUSTRIAL UNDERTAKING FOR COMP UTING DEDUCTION UNDER SECTION 80IA. 7. AT THE TIME OF HEARING BEFORE US, IT IS STATED B Y THE LEARNED COUNSEL THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E BY THE DECISION OF THE ITAT IN THE ASSESSEES OWN CASE FOR A.Y.2001-2002 V IDE ITA NO.2703/AHD/2004. THE LEARNED DR, ON THE OTHER HAN D, STATED THAT THE ITAT ALLOWED THE NETTING OF THE SERVICE CHARGES AS WELL AS INTEREST INCOME FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER SE CTION 80IA FOLLOWING THE SPECIAL BENCH DECISION OF THE ITAT IN THE CASE OF LALSON ENTERPRISES VS. DCIT, 89 ITD 25 (SB) (DELHI). THE HONBLE BOMB AY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS ASIAN STA R CO. LTD., 326 ITR 56 DISAPPROVED THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF LALSONS. THEREFORE, NOW THE DECISION OF THE LAL SONS BY THE SPECIAL ITA NO.176 AND 177/AHD/2009 -4- BENCH OF THE ITAT DOES NOT REMAIN A GOOD LAW. HE T HEREFORE SUBMITTED THAT THE ORDERS OF THE AUTHORITIES BELOW ON THIS PO INT SHOULD BE SUSTAINED. 8. IN THE REJOINDER, IT IS STATED BY THE LEARNED CO UNSEL THAT THE DECISION OF THE SPECIAL BENCH WAS WITH REFERENCE TO THE DEDU CTION UNDER SECTION 80HHC. THE ITAT DIRECTED FOR EXCLUSION OF NET INCO ME FROM INTEREST ETC. WHILE COMPUTING THE PROFIT OF THE BUSINESS. H OWEVER, THE HONBLE BOMBAY HIGH COURT FOUND THAT IN SECTION 80HHC ITSEL F, UNDER EXPLANATION (BAA) , THE PARLIAMENT HAS THOUGHT IT FIT TO EXCLUDE ONLY 90% RECEIPT RECEIVED BY THE ASSESSEE WHICH HAVE NO NEXU S WITH THE EXPORT ACTIVITY. THEREFORE, THE BALANCE 10% IS AGAINST TH E EXPENDITURE. HE REFERRED TO THE OBSERVATION OF THEIR LORDSHIPS AT P AGE NO.69 OF THE 326 ITR. HE THEREFORE STATED THAT IN THE CASE OF ASIAN STAR CO. LTD. (SUPRA) THE HONBLE BOMBAY HIGH COURT HAS IN PRINCIPLE APPR OVED THAT ONLY THE NET INCOME FROM INTEREST, COMMISSION ETC. IS TO BE EXCLUDED FROM THE PROFITS AND GAINS OF THE BUSINESS. HOWEVER, SINCE IN SECTION 80HHC, THE LEGISLATURE ITSELF HAS ALLOWED 10% TOWARDS EXPENDIT URE, NO FURTHER EXPENDITURE WAS DIRECTED TO BE ALLOWED. HOWEVER, I N SECTION 80IA THERE IS NO SUCH EXPLANATION LIKE EXPLANATION-BAA OF SECTION 80HHC. DEDUCTION UNDER SECTION 80IA IS TO BE ALLOWED ON TH E PROFIT DERIVED FROM THE INDUSTRIAL UNDERTAKING. IF WHILE COMPUTING THE PROFIT DERIVED FROM THE INDUSTRIAL UNDERTAKING, GROSS RECEIPTS FROM SERVICE CHARGES AND INTEREST ARE EXCLUDED THEN IN EFFECT, THE EXPENDITURE INCURR ED BY THE ASSESSEE FOR EARNING THE SERVICE CHARGES/INTEREST INCOME WOULD B E REDUCED FROM THE PROFIT OF THE INDUSTRIAL UNDERTAKING. HE THEREFORE STATED THAT SO FAR AS SECTION 80IA IS CONCERNED, ONLY NET INCOME FROM THE SERVICE CHARGES OR INTEREST INCOME CAN BE EXCLUDED. HE IS FAIR ENOUGH TO ADMIT THAT WHILE COMPUTING THE NET INCOME THE EXPENDITURE WHICH WAS INCURRED BY THE ITA NO.176 AND 177/AHD/2009 -5- ASSESSEE FOR EARNING THE INCOME FROM THE SERVICE CH ARGES AS WELL AS INTEREST INCOME ONLY WOULD BE EXCLUDED. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. IT IS NOT IN DISPUTE THAT THE ITAT ALLO WED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN A.Y.2001-2002 VIDE ITA NO.2703/A HD/2004. THE ITAT DIRECTED FOR THE EXCLUSION OF NET SERVICE CHAR GES AS WELL AS NET INTEREST INCOME FROM THE PROFIT OF THE INDUSTRIAL U NDERTAKING FOR COMPUTING THE DEDUCTION UNDER SECTION 80IA. WHILE DOING SO, THE ITAT RELIED UPON THE DECISION OF THE SPECIAL BENCH IN TH E CASE OF LALSONS (SUPRA). THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ASIAN STAR P. LTD. (SUPRA) HAVE DISAPPROVED THE DECISIONS OF THE SPECIAL BENCH OF THE ITAT. NOW, THE QUESTION IS WHETHER THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ASIAN STAR (SUPRA) WOULD BE APPLICABLE FOR SECTION 80IA. THEIR LORDSHIPS DISCUSSED THIS ISSUE AT LENGTH AT PAGE NO.67, 68 AND 69 OF THE REPORT I.E. 326 ITR. THE S AME IS REPRODUCED BELOW FOR READ REFERENCE: THE DEDUCTION UNDER SECTION 80HHC IS AVAILABLE TO AN ASSESSEE ENGAGED IN THE EXPORT OF GOODS OR MERCHANDISE OUTSI DE INDIA TO THE EXTENT OF THE PROFITS SPECIFIED IN SUB-SECTION (1B) OF THE PROVISION. CLAUSE (A) OF SUB-SECTION (3) OF SECTION 80HHC PROV IDES THAT WHERE THE EXPORTED GOODS ARE MANUFACTURED BY THE AS SESSEE, THE DEDUCTION UNDER SUB-SECTION (1) WOULD BE IN ACCORDA NCE WITH THE FORMULA STATED THEREIN. THE FORMULA IS THAT THE PRO FITS DERIVED FROM SUCH EXPORT SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROPORTION AS THE EXPORT TURNOVE R IN RESPECT OF SUCH GOODS BEARS TO THE TOTAL TURNOVER OF THE BUSIN ESS CARRIED ON BY THE ASSESSEE. EXPLANATION (BAA) WAS INSERTED BY THE FINANCE (NO. 2) ACT OF 1991 WITH RETROSPECTIVE EFFECT FROM APRIL 1, 1987. UNDER EXPLANATION (BAA), THE EXPRESSION 'PROFITS OF THE B USINESS' MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE H EAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' AS REDUCED BY NINE TY PER CENT. OF (A) ANY SUMS REFERRED TO IN CLAUSES (IIIA), (IIIB), (IIIC), (IIID) AND ITA NO.176 AND 177/AHD/2009 -6- (IIIE) OF SECTION 28 ; OR (B) ANY RECEIPTS BY WAY O F BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RE CEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFITS. THE PROFITS OF ANY BRANCH, OFFICE, WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESSE E SITUATED OUT- SIDE INDIA HAVE ALSO TO BE REDUCED. SINCE RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR O THER SIMILAR RECEIPTS HAVE NO NEXUS WITH THE EXPORT ACTIVITY, TH E LEGISLATURE THOUGHT IT FIT, FOR THE PURPOSE OF DEDUCTION UNDE R SECTION 80HHC TO EXCLUDE SUCH ITEMS FROM BUSINESS PROFITS. PARLIA MENT WAS, HOWEVER, CONSCIOUS OF THE FACT THAT THE EXPENDITURE INCURRED IN EARNING THE ITEMS WHICH WERE LIABLE TO BE EXCLUDED HAD ALREADY GONE INTO THE COMPUTATION OF BUSINESS PROFITS. THIS WAS BECAUSE THE COMPUTATION OF BUSINESS PROFITS UNDER CHAPTER IV IS MADE BY AMALGAMATING THE RECEIPTS AS WELL AS THE EXPENDITUR E INCURRED IN CARRYING ON THE BUSINESS. SINCE THE EXPENDITURE INC URRED IN EARNING THE INCOME BY WAY OF INTEREST, BROKERAGE, COMMISSIO N, RENT, CHARGES OR OTHER SIMILAR RECEIPTS HAD ALSO GONE INT O THE COMPUTATION OF BUSINESS PROFITS, PARLIAMENT THOUGHT IT FIT TO EXCLUDE ONLY NINETY PER CENT. OF THE RECEIPTS RECEIVED BY T HE ASSESSEE IN ORDER TO ENSURE THAT THE EXPENDITURE WHICH IS INCUR RED BY THE ASSESSEE IN EARNING THE RECEIPTS WHICH HAS GONE INT O THE COMPUTATION OF THE BUSINESS PROFITS IS TAKEN CARE O F. THE REASON WHY PARLIAMENT CONFINED THE REDUCTION FA CTOR TO NINETY PER CENT. OF THE RECEIPTS IS STATED IN THE MEMORAND UM EXPLAINING THE PROVISIONS OF THE FINANCE (NO. 2) BILL OF 1991. IN SO FAR AS IT IS RELEVANT, THE MEMORANDUM STATES THUS [1991] 191 ITR (ST.) 270, 300) : 'THE EXISTING FORMULA MAY ALSO GIVE A DISTORTED FI GURE OF EXPORT PROFITS WHEN RECEIPTS LIKE INTEREST, COMMISS ION, ETC., WHICH DO NOT HAVE AN ELEMENT OF TURNOVER ARE INCLUD ED IN THE PROFIT AND LOSS ACCOUNT. IT IS, THEREFORE, PROPOSED TO CLARIFY THAT `PROFITS OF THE BUSINESS' FOR THE PURPOSE OF SECTION 80HHC WILL NOT INCLUDE RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE. A S SOME EXPENDITURE MIGHT BE INCURRED IN EARNING THESE INCO MES, WHICH IN THE GENERALITY OF CASES IS PART OF COMMON EXPENSES, IT IS PROPOSED TO PROVIDE AD HOC 10 PER CENT. DEDUC TION FROM SUCH INCOMES TO ACCOUNT FOR THESE EXPENSES.' ITA NO.176 AND 177/AHD/2009 -7- PARLIAMENT, THEREFORE, CONFINED THE REDUCTION TO TH E EXTENT OF NINETY PER CENT. OF THE INCOME EARNED THROUGH SUCH RECEIPT S SINCE IT WAS COGNIZANT OF THE FACT THAT THE ASSESSEE WOULD HAVE INCURRED SOME EXPENDITURE IN EARNING THOSE INCOMES. PARLIAMENT PR OVIDED AN AD HOC DEDUCTION OF TEN PER CENT. FROM SUCH INCOMES TO ACCOUNT FOR THE EXPENSES INCURRED IN EARNING THE RECEIPTS. THE EXPL ANATORY STATEMENT WHICH IS CONTAINED IN THE MEMORANDUM EXPL AINING THE PROVISIONS OF THE FINANCE (NO. 2) BILL OF 1991 HAS ALSO BEEN REFLECTED IN THE EXPLANATORY CIRCULAR ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES ON DECEMBER 19, 1991 (CIRCULAR NO. 621 ). THE DISTORTION OF THE PROFITS THAT WOULD TAKE PLACE BY EXCLUDING THE RECEIPTS RECEIVED BY THE ASSESSEE WHICH WERE UNRELA TED TO EXPORT TURNOVER AND NOT THE EXPENDITURE INCURRED BY THE AS SESSEE IN EARNING THOSE RECEIPTS WAS FACTORED IN BY PARLIAMENT BY EXCLUDING ONLY NINETY PER CENT. OF T HE RECEIPTS RECEIVED BY THE ASSESSEE. IN A GIVEN CASE, THE EXPE NDITURE INCURRED BY THE ASSESSEE IN EARNING THE RECEIPTS, WHICH IS T O BE EXCLUDED, MAY BE MORE THAN TEN PER CENT. OR LESS THAN TEN PER CENT. PARLIAMENT, HOWEVER, THOUGHT IT FIT TO ADOPT A UNIF ORM FORMULA ENVISAGING A REDUCTION OF NINETY PER CENT. TO MAKE DUE ALLOWANCE FOR THE EXPENDITURE WHICH WOULD HAVE BEEN INCURRED BY THE ASSESSEE IN EARNING THE RECEIPTS. PARLIAMENT REGARD ED THE ELEMENT OF EXPENDITURE COMPUTED AT TEN PER CENT. OF THE REC EIPTS TO BE A REASONABLE PARAMETER OF WHAT WOULD HAVE BEEN EXPEND ED BY THE ASSESSEE. IT IS IN THIS BACKGROUND THAT IN EXPLANAT ION (BAA), PARLIAMENT HAS THOUGHT IT FIT TO EXCLUDE NINETY PER CENT. OF THE RECEIPTS RECEIVED BY THE ASSESSEE WHICH HAVE NO NEX US WITH THE EXPORT ACTIVITY. ORDINARILY, THE SUMS, RECEIPTS AND PROFITS SET OUT IN CLAUSE (BAA) WOULD HAVE BEEN REQUIRED TO BE EXCLUDE D COMPLETELY FROM THE PROFITS OF THE BUSINESS, BEING UNRELATED T O EXPORT TURNOVER. YET, SINCE THE EXPENDITURE INCURRED IN EARNING SUCH SUMS, RECEIPTS AND PROFITS HAS ALREADY BEEN TAKEN INTO ACCOUNT ON THE DEBIT SIDE, IN COMPUTING PROFITS OF THE BUSINESS, IT IS ONLY NI NETY PER CENT. OF THESE SUMS, RECEIPTS AND PROFITS REFERRED TO THEREI N WHICH WOULD HAVE TO BE EXCLUDED FROM THE PROFITS OF THE BUSINES S IN ORDER TO OFF SET THE EXPENDITURE TAKEN INTO ACCOUNT WHILE COM-PU TING THE BUSINESS PROFITS. IN OTHER WORDS, THE DISTORTION IN THE PROFITS OF BUSINESS THAT WOULD TAKE PLACE BY EXCLUDING ONLY TH E SUMS, RECEIPTS AND PROFITS FROM THE CREDIT SIDE, BUT NOT THE EXPEN DITURE FROM THE DEBIT SIDE, IS OFFSET BY EXCLUDING ONLY NINETY PER CENT. OF SUCH SUMS, ITA NO.176 AND 177/AHD/2009 -8- RECEIPTS AND PROFITS TO REPRESENT THE EXPENDITURE I NCURRED ON EARNING THEM. AS STATED EARLIER, IT MAY WELL BE THA T THE ACTUAL EXPENDITURE INCURRED IN A CASE MAY BE MORE OR LESS THAN THE STATUTORY FACTOR OF TEN PER CENT. ENACTED BY PARLIA MENT, BUT IN ORDER TO SIMPLIFY THE APPLICATION OF THE LAW, PARLIAMENT TREATED A UNIFORM EXPENDITURE COMPUTED AT TEN PER CENT TO BE APPLICAB LE IN ORDER TO ENSURE THAT THERE IS NO DISTORTION OF PROFITS BY EX CLUSION OF INCOME WHICH IS NOT RELATABLE TO EXPORT PROFITS. FROM THE ABOVE, IT IS EVIDENT THAT THEIR LORDSHIPS HAVE NOWHERE STATED THAT THE GROSS AMOUNT OF THE RECEIPTS IS TO BE EXCL UDED AND THE EXPENDITURE INCURRED FOR EARNING INCOME IS TO BE IGNORED. BUT SINCE IN SECTION 80HHC THE PARLIAMENT BY WAY OF EXPLANATION-(BAA) HAS PROVIDED IN-BUILT MECHANISM FOR ALLOWING THE EXPENDITURE AT 10% OF TH E RECEIPT, NO FURTHER DEDUCTION FOR EXPENDITURE WAS ALLOWED. BY WAY OF EXPLANATION-BAA THE LEGISLATURE PROVIDED FOR REDUCTION OF 90% OF THE IN COME EARNED BY WAY OF INTEREST, COMMISSION, BROKERAGE, RENT ETC. THU S, THE PARLIAMENT PROVIDED AN AD HOC DEDUCTION OF 10% FROM SUCH INCOME TO ACCOUNT FOR THE EXPENSES INCURRED IN EARNING THE RECEIPT. THEI R LORDSHIPS WERE ALSO CONSCIOUS OF THE FACT THAT THE EXPENDITURE MAY BE E VEN MORE THAN 10% OR LESS THAN 10% IN DIFFERENT CASES. BUT SINCE THE PA RLIAMENT TREATED THE UNIFORM EXPENDITURE COMPUTED AT 10% THEIR LORDSHIPS DIRECTED THAT FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80 HHC NO FURTHER EXPENDITURE CAN BE ALLOWED. HOWEVER, AS IN SECTION 80IA THERE IS NO PROVISION SIMILAR TO EXPLANATION-BAA OF SECTION 80HHC, THEREFORE, IN OUR OPINION, WHILE COMPUTING DEDUCTION UNDER SECTION 80 IA FROM THE PROFIT OF THE BUSINESS, NET INCOME FROM SERVICE CHARGES OR NET INCOME FROM INTEREST IS TO BE EXCLUDED. HOWEVER, WHILE COMPUTI NG THE NET INCOME ONLY THE EXPENDITURE WHICH HAS NEXUS WITH THE EARNI NG OF SUCH INCOME ONLY WILL BE REDUCED FROM THOSE INCOME. WE THEREFO RE SET ASIDE THE ORDER OF THE AUTHORITIES BELOW ON THIS POINT AND RESTORE THE MATTER BACK TO THE ITA NO.176 AND 177/AHD/2009 -9- FILE OF THE ASSESSING OFFICER. WE DIRECT HIM TO EX CLUDE THE NET INCOME FROM SERVICE CHARGES AS WELL AS NET INTEREST INCOME FROM THE PROFITS OF THE INDUSTRIAL UNDERTAKING FOR COMPUTING DEDUCTION UNDE R SECTION 80IA. 10. GROUND NO.6 OF THE ASSESSEES APPEAL READS AS U NDER: 6. CONFIRMING ACTION OF ASSESSING OFFICER IN REDUC ING DEDUCTION UNDER SECTION 80IA FROM THE PROFITS OF TH E BUSINESS FOR THE PURPOSE OF ARRIVING AT PROFITS FOR COMPUTIN G DEDUCTION U/S.80HHC. 11. AT THE TIME OF HEARING, THE LEARNED COUNSEL FAI RLY ADMITTED THAT THIS ISSUE IS AGAINST THE ASSESSEE BY THE DECISION OF TH E SPECIAL BENCH OF THE ITAT IN THE CASE OF ACIT VS. HINDUSTAN MINT & AGRO PRODUCTS PVT. LTD., 119 ITD 107 (DEL) (SB), WHEREIN THE SPECIAL BENCH H ELD AS UNDER: SAID CONTENTION COULD NOT BE ACCEPTED AS ALL STATUT ORY PROVISIONS ARE INTER-RELATED AND ARE PARTS OF ONE SCHEME. THI S CANNOT BE READ DE HORS ONE AND OTHER. RESTRICTION IMPOSED IN SECTI ON 80-IA(9)/80- IB(9A) ARE TO BE READ IN ALL SECTIONS AND GIVEN EFF ECT TO. THIS WOULD ONLY GIVE HARMONIOUS READING. THUS, DEDUCTION TO BE ALLOWED UNDER ANY OTHER PROVI SION OF CHAPTER VI-A WITH THE HEADING C (WHICH INCLUDES SECTION 8 0H, 80HHC ETC.) IS TO BE REDUCED BY AN AMOUNT OF DEDUCTION AL LOWED UNDER SECTION 80IA/80IB RESPECTFULLY FOLLOWING ABOVE SPECIAL BENCH DECISION OF THE ITAT, WE UPHOLD THE ORDER OF THE AUTHORITIES BELOW ON THIS P OINT AND REJECT GROUND NO.6 OF THE ASSESSEES APPEAL. 12. GROUND NO.7 OF THE ASSESSEES APPEAL READS AS U NDER: 7. CONFIRMING ACTION OF THE ASSESSING OFFICER IN E XCLUDING EXCISE DUTY OF RS.12,24,215/- IN TOTAL TURNOVER OF THE BUSINESS FOR COMPUTING DEDUCTION UNDER SECTION 80HHC. ITA NO.176 AND 177/AHD/2009 -10- 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THAT THIS ISSUE IS TO BE COVERE D IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE APEX COURT I THE CASE OF CIT VS. LAKSHMI MACHINE WORKS, 290 ITR 667 WHEREIN THE HON BLE APEX COURT HELD AS UNDER: THE PRINCIPAL REASON FOR ENACTING A FORMULA IN SEC TION 80HHC OF THE INCOME-TAX ACT, 1961, IS TO DISALLOW A PART OF THE CONCESSION THEREUNDER WHEN THE ENTIRE DEDUCTION CLAIMED CANNOT BE REGARDED AS RELATING TO EXPORTS. THEREFORE, WHILE INTERPRETI NG THE WORDS TOTAL TURNOVER IN THE FORMULA IN SECTION 80HHC ONE HAS T O GIVE A SCHEMATIC INTERPRETATION. THE VARIOUS AMENDMENTS MA DE THEREIN SHOW THAT RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, ETC., DO NOT FORM PART OF BUSINESS PROFITS AS THEY HAVE NO NEXUS WITH THE ACTIVITY OF EXPORT. THE AMENDMENTS MADE FROM TI ME TO TIME INDICATE THAT THEY BECAME NECESSARY IN ORDER TO MAK E THE FORMULA WORKABLE. IF SO, EXCISE DUTY AND SALES TAX ALSO CAN NOT FORM PART OF THE TOTAL TURNOVER UNDER SECTION 80HHC(3) : OTHER WISE THE FORMULA BECOMES UNWORKABLE. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HO NBLE APEX COURT, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THE EXCISE DUTY FROM THE TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTIO N 80HHC. THIS GROUND OF THE ASSESSEE IS ALLOWED. 14. GROUND NO.9 AND 10 OF THE ASSESSEES APPEAL REA D AS UNDER: 9. CONFIRMING EXCLUSION OF NET SERVICE CHARGES REC EIVED OF RS.13,23,938/- FROM THE PROFITS OF THE BUSINESS FOR COMPUTING THE DEDUCTION UNDER SECTION 80HHC. 10. CONFIRMING THE EXCLUSION OF INTEREST INCOME OF RS.5,35,604/- FROM THE PROFITS FOR COMPUTING DEDUCTION UNDER SECT ION 80HHC. ITA NO.176 AND 177/AHD/2009 -11- 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. WE HAVE ALREADY DISCUSSED THIS ISSUE AT LENGTH WHILE CONSIDERING THE GROUND NO.4 AND 5 OF THE ASSESSEES APPEAL. HOWEVER, SO FAR AS THE DEDUCTION UNDER SECTION 80HHC IS CONC ERNED, THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ASIAN STAR CO. LTD., 326 ITR 56 WOULD BE SQUARELY APPLICABLE. RES PECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF THE AUTHORITIES BE LOW IN THIS REGARD. ACCORDINGLY, GROUND NO.9 AND 10 OF THE APPEAL ARE R EJECTED. 16. GROUND NO.11 READS AS UNDER: 11. CONFIRMING EXCLUSION OF DEPB LICENSE ON HAND O F RS.4,21,702/- FROM THE PROFITS FOR COMPUTING DEDUCT ION UNDER SECTION 80HHC. 17. AT THE TIME OF HEARING BEFORE US, THE LEARNED C OUNSEL FOR THE ASSESSEE DID NOT PRESS THIS GROUND OF APPEAL. ACCO RDINGLY, THE SAME IS REJECTED. ITA NO.177/AHD/2009 18. GROUND NO.1 OF THE ASSESSEES APPEAL READS AS U NDER: 1. CONFIRMING EXCLUSION OF DEPB INCOME OF RS.65,3 7,850/- FROM THE PROFITS FOR COMPUTING DEDUCTION UNDER SECT ION 80HHC. 19. AT THE TIME OF HEARING BEFORE US, THE LEARNED C OUNSEL FOR THE ASSESSEE FAIRLY ADMITTED THAT THIS ISSUE IS AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF KALPATARU COLOURS & CHEMICALS, 328 ITR 451 (BOM). RESPECTFUL LY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF THE AUTHORITIES BELOW ON THIS POINT AND REJECT GROUND NO.1 OF THE ASSESSEES APPEAL. ITA NO.176 AND 177/AHD/2009 -12- 20. GROUND NO.2 OF THE ASSESSEES APPEAL IS SIMILAR TO GROUND NO.9 OF THE ASSESSEES APPEAL FOR A.Y.2002-2003 I.E. WHETHE R GROSS OR NET SERVICE CHARGES IS TO BE EXCLUDED WHILE COMPUTING THE DEDUC TION UNDER SECTION 80HHC. FOR THE DETAILED DISCUSSION IN A.Y.2002-200 3, WE UPHOLD THE ORDER OF THE AUTHORITIES BELOW ON THIS POINT AND RE JECT GROUND NO.2 OF THE ASSESSEES APPEAL. 21. IN RESULT, THE ASSESSEES APPEAL IN ITA NO.176/ AHD/2009 IS PARTLY ALLOWED, WHILE THE ASSESSEES APPEAL IN ITA NO.177/ AHD/2009 IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 8 TH APRIL, 2011 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 08-04-2011 C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD